R. Banumathi, J.
1. The suit and applications have been filed at the instance of a shareholder of the first defendant challenging the transfer of Wind Energy Division from the first defendant to the second defendant.
2. The applicant/plaintiff has filed the above said two applications seeking interim injunction: (a) restraining the second defendant from carrying on business of Wind Energy Division under am other name or through any other person, (b) restraining the second defendant from in any manner pending compliance with the terms and conditions of sanction accorded by the shareholders of the first defendant to the defendants not to sell, pledge, mortgage or transfer the Wind Energy Division.
3. The factual background which lead to the filing of the suit are as follows:
(a) The first def endant-'NEPC' India Ltd. ('D1 -NEPC') has been carrying on and engaged in the business of manufacturing, selling, exporting, supplying, importing, and dealing in Wind turbine generator, generator and Wind mills. The second defendant-Southern Wind Farms (P.) Ltd. (hereinafter referred to as 'D2-SWL') has been carrying on the business of all kinds of power generation equipments including wind mills, etc.
(b) D1-NEPC and D2-SWL had entered into a slump sale agreement on 16-1-2006. D2-SWL had purchased the Wind Energy Division of D 1-NEPC as a going concern, with all its assets, liabilities and obligations, etc. consent of the members of D 1-NEPC was obtained by postal ballot. As per the terms of slump sale agreement, the consideration of the transfer of Wind Energy Division shall be discharged by D2-SWL in the following manner:
(i) Pay Rs. 135 crore to the secured, unsecured and creditors of the company.
(ii) A value equivalent to or representing 12.5 per cent of fully paid equity shares of Rs. 10 each of Southern Wind Farms (P.) Ltd. to be issued to trust to be formed by the company, for the benefit to equity shareholders of the company.
(c) Alleging breach of terms of slump sale agreement, D1 -NEPC has filed a petition under Section 11(4) of the Arbitration and Conciliation Act, 1996 seeking for an appointment of an arbitrator to resolve the disputes and the same is pending.
(d) The case of the applicant/plain tiff is that she is a shareholder of D1-NEPC and has received a notice under Section 192A(2) of the Companies Act, 1956 ('the Act') seeking for consent from the shareholders to accord sanction by the Board of directors of the company to enter into an agreement with D2-SWL for transfer, sale or otherwise dispose of D1-NEPC's Wind Energy Division. The plaintiff has also given her consent to accord sanction by postal ballot on 25-11-2005.
(e) The plaintiff has alleged that the defendants have not furnished the required particulars and informations. It is further alleged that to defraud the shareholders, the defendants have acted in collusion and in connivance with each other. As the act of the defendants is detrimental to the plaintiffs individual interest and the interest of other shareholders of D1-NEPC, the transfer of Wind Energy Division is challenged by the plaintiff.
(f) Under the slump sale agreement, D1-NEPC agreed to sell Wind Energy Division to D2-SWL. Apart from other consideration equity was to be allotted to D2-SWL. The plaintiff has alleged that a fraud has been played on her and other similarly placed shareholders by the collusive act of the defendants. She has further alleged that only 87,50,000 shares were shown to have been transferred to the trust formed by D1-NEPC.
(g) According to the plaintiff, calculating 12.5 per cent on the enhanced assets of Rs. 85,00,00,000, D2-SWL ought to have transferred the shares to the tune of Rs. 10,62,50,000 to the trust and by virtue of the slump sale agreement, as a shareholder, the plaintiff has right in the equity of D2-SWL.
(h) The act of the defendants amounts to oppression and mismanagement and hence, the plaintiff has filed the suit and the applications for the reliefs stated supra.
4. The applications are resisted by D2-S WL contending that the applicant/plaintiff is a family member of the promoter family of D1-NEPC and that she has been set up to interfere in the affair of D2-SWL. D2-SWL has acquired Wind Energy Division of D1-NEPC in terms of the slump sale agreement. The procedural requirements under the Act for the sale of Wind Energy Division by D1-NEPC to D2-SWL were duly complied with. D2-SWL has allotted 87,50,000,12.5 per cent fully paid-up equity shares to the Trust which was also notified to the Registrar of Companies. The applicant/plaintiff has filed the Suit in collusion with D1-NEPC only to meet the extortionary, illegal and usurious demands.
5. The applicant/plaintiff being a shareholder has no right over the property or assets owned by the company and she has no locus standi to claim any entitlement for the allotment of shares directly to her. She has also not truthfully disclosed the material facts and she is not entitled to discretionary relief of interim injunction. The passing of the order of interim injunction and its continuance would cause harm to D2-SWL and, therefore, the applicant/plaintiff is not entitled to the discretionary relief of Interim Injunction. As the balance of convenience lies only in favour of D2-SWL, these applications are to be dismissed vacating the Interim Injunction already granted.
6. Heard both sides.
7. At the time of filing the suit, interim injunction was granted in favour of the plaintiff. Urging to confirm the order of interim injunction, Mr. S. Parthasarathy, learned senior Counsel for the applicant/plaintiff, has submitted that the transfer of Wind Energy Division was effected only to defraud the shareholders and when it comes to the question of shareholding, relationship of the applicant/plaintiff with the chairman of D1-NEPC is immaterial, since the applicant/plaintiff, as a shareholder, has the right to take necessary steps.
8. On the maintainability of the suit, the learned senior Counsel would submit that since the plaintiff has not been allotted any share and as D2-SWL and the trustees are acting prejudicial to the interest of the plaintiff and other shareholders, the plaintiff has approached the civil court seeking for common law remedy. It was further urged that since D1-NEPC and D2-SWLhave brought about an arrangement to defeat the lawful rights of the plaintiff, the availing of common law remedy by filing the Suit by the plaintiff cannot be denied on the ground of maintainability of Suit.
9. Countering the arguments, Mr. Aravind Datar, learned senior Counsel for D2-SWL, has inter alia raised the following contentions:
The plaintiff has not disclosed material facts and, therefore, she is not entitled to the equitable relief of interim injunction.
When all the shareholders including the plaintiff have given their approval by postal ballot for sale of Wind Energy Division to D2-S WL as a going concern, the plaintiff alone, as a shareholder, cannot raise objection.
The interim injunction sought for against D2-SWL not to carry on business in any other name is against the terms of contract between D1 and D2 and when it would be the subject-matter of the arbitration proceedings, the shareholder cannot seek common law remedy alleging that there is breach of terms of the agreement.
Whether 12.5 per cent equity share capital is to be paid on the date of transfer or on the date of enhanced capital would be the subject-matter of arbitration proceedings and the same cannot be gone into by the civil court.
10. The learned senior Counsel further urged that the shareholder could only acquire right to participate in the profits of the company and she cannot claim any right in the assets of the company. Submitting that the balance of convenience is only in favour of D2-SWL, the learned senior Counsel prayed for vacating the interim injunction granted in favour of the plaintiff.
11. In the light of contentions of both parties and the above principles, it is required to be seen whether the plaintiff has established prima facie case, both on facts and on law, which justify grant of injunction in company matters. Prima facie case has to be established by the plaintiff that she has strong case for ultimate success and the normal functions of the second defendant company is sought to be restrained.
12. The grant or refusal of a temporary injunction is subject to the following principles:
(a) Prima facie case of plaintiff's legal right.
(b) Balance of convenience in his favour.
(c) Whether he would suffer irreparable injury if injunction is not granted.
These conditions have to be satisfied and proof of any of them is not by itself sufficient to obtain a temporary injunction. Prima facie case means that there exists a strong probability that the petitioner has an ultimate chance of success in the suit. Balance of convenience is the principle by which the court weighs and balance the mischief or inconvenience to either side. 'Irreparable injury' means a substantial injury which cannot be adequately compensated for in damages.
13. While considering the question of prima facie case what the court is required to see is whether there is a fair question involved in the suit for decision and it will suffice if it is found that the plaintiff has a strong probability of ultimate success. All that the plaintiff is required to show is that he has a fair and serious question to be tried.
14. Grant of temporary injunction is discretionary. The plaintiff approaching the court has to show that he has some equities for exercising the discretion in his favour. The court has every discretion to refuse to grant injunction in appropriate cases.
15. The slump sale agreement was entered between D1-NEPC and D2-SWL and the Wind Energy Division of D1-NEPC was sold to D2-SWL as a going concern with assets and liabilities. The resolution for transfer was approved by 98 per cent of the shareholders including the plaintiff. Notice pursuant to Section 192A(2) of the Act was sent seeking for approval by postal ballot.
16. Concededly, the plaintiff herself has accorded her consent to the same by postal ballot on 25-11-2005. The approval of the above resolution by the shareholders would show that the procedural requirements under the Companies Act, 1956 for the sale of the Wind Energy Division by D1-NEPC to D2-SWL were duly complied with.
17. As per the terms of slump sale agreement, 87,50,000 12.5 per cent paid-up equity shares of D2-SWL have been allotted to the trust and it has been notified to the Registrar of Companies. It could be seen from the share certificate issued by D2-SWL that 87,50,000 equity shares were allotted to the trust comprising of the trustees, namely, Surendra Pipara, Madhukar Moolwaney, V.R. Mohan, Rajkumar Khemka and C.P. Khandelwal.
18. It is stated that the amount has been paid to the secured and unsecured vendors and creditors of the company as per the directions of D1-NEPC. In fact, D1-NEPC has confirmed that D2-SWL has complied with all obligations and covenants of slump sale agreement. Without mincing words, D1 -NEPC has confirmed the same as is seen from the following communication, dated 17-7-2006:
We hereby confirm that SWL and/or its shareholders have complied with all obligations and covenants, and performed all acts that were required to be done by SWL and/or its shareholders under the Agreement and documents incidental thereto so as to give effect to the transfer of the Wind Energy Business to SWL.
We further confirm that SWL and/or its shareholders is not required to execute any document other than those already executed, nor is SWL and/or its shareholders required to make any payment, or give any consideration whether direct or indirect, or discharge or assume any obligations or liabilities of the company, whatsoever in nature, for effecting transfer of the Wind Energy Business to its name.
19. Along with the above said communication, D1-NEPC has also enclosed the extract of the resolution passed by the Board of directors of D1-NEPC at its meeting held on 17-11-2006. The following resolution makes it clear that no amount or consideration whatsoever in nature, is due or payable by SWL.
Further resolved that it be taken on record that no further amount or consideration, whatsoever in nature, is due or payable by SWL and/or is shareholders, whether directly or indirectly, in relation to the transfer of the Wind Energy Business by the company to SWL and also that SWL and/or its shareholders is not required to discharge or assume any obligations or liabilities of the company, whatsoever in nature, whether directly or indirectly, an d therefore a valid release and discharge, on perpetual basis, is given to SWL and/or its shareholders in relation to the same.
Further resolved that it be taken on record that SWL is not required to execute any document other than those already executed, for effecting transfer of the Wind Energy business to its name.
20. By the above said resolution and the communication dated 17-11-2006, D1-NEPC has made it clear that D2-SWL has complied with all obligations and covenants and performed all acts that were required to be done by D2-SWL. The company Board's power and discretion are wide enough to determine the matter especially when the resolution for the slump sale agreement was approved by the shareholders by postal ballot. When D1-NEPC has made it clear that all obligations and covenants have been performed as per the terms of agreement, it is not open to an individual shareholder to raise any objection as to the performance or non-performance of the terms of agreement on the ground of breach of terms of slump sale.
21. The courts are generally reluctant to interfere with the decisions taken at company Board meetings. Prima facie the decision of the chairman at such company meetings is allowed to stand until it is proved to be in breach of the articles or the statute. The burden of proving the chairman's decision to be wrong rests with the party challenging his decision.
22. The materials on record do not prima facie show that there was breach of articles of association or statute. In fact, the plaintiff and her family members are the beneficiaries of the slump sale. As per the directions of D1-NEPC, D2-SWL is stated to have made payment of Rs. 55,00,000 to the plaintiff, Rs. 45,00,000 to the plaintiffs husband and Rs. 87,90,777 to the plaintiffs plywood firm 'Om Prakash Fateh Chand'. The averments in para (7) of the common counter affidavit with regard to the aforesaid payment said to have been made to the plaintiff and her family remain uncontroverted in the reply statement filed by the plaintiff. Having approved the slump sale and received the payment and being beneficiary of the terms of slump sale agreement, it is not open to the plaintiff to contend that the said transaction is a collusive act of Dl-NEPC and D2-SWL.
23. Mr. Aravind Datar, learned senior Counsel for D2-SWL, has laid emphasis on the fact that the plaintiff is none other than the daughter of Raviprakash Khemka who is the chairman of Dl-NEPC and also sister of Rajkumar Khemka and Tirupathi Kumar Khemka, who are the vice-chairman and managing director of D1-NEPC. The plaintiff held 48,000 equity shares which is only 1 per cent of the total shares of D1-NEPC.
24. It is relevant to note that when the suit was filed, the plaintiff did not disclose the material fact that she is the daughter of the chairman of D1-NEPC and sister of other office bearers of D1-NEPC. The plaintiff, being a family member of D1-NEPC, in all fairness, she ought to have disclosed her close relationship with the chairman and vice-chairman and managing director of D1-NEPC.
25. Pointing out the relationship of the plaintiff, the learned senior Counsel for D2-SWL has submitted that the plaintiff is only a stooge of D1-NEPC and she has been set up to interfere in the affairs of D2-SWL. Such contention is probabilised by certain noticeable features. Both in the plaint and in the affidavit, the plaintiff has stated that she made search with the records available with the Registrar of the Companies, Chennai and that she came to know that the authorised capital of D2-SWL was shown to be increased from Rs. 10,00,000 to Rs. 75,00,00,000 in March 2006 and from Rs. 75,00,00,000 to Rs. 85,00,00,000 in December 2006. In para (10) of the affidavit though the plaintiff has referred to all minute details as to how shares have been allotted, the plaintiff has not produced any document evidencing the search made with the Registrar of Companies, Chennai. The plaintiff has also not stated as to how she came to know about the details of allotment of shares. That apart, the plaintiff has also stated that she has sent a letter to the Registrar of Companies asking for certain particulars. But the plaintiff has not produced any letter in support of her allegations. The allegations made in the affidavit and the details of the internal functioning of the companies only probabilise that the plaintiff has filed the Suit at the behest of her father and brothers who are none other than the chairman, vice-chairman and managing director of Dl-NEPC.
26. The bone of contention of the applicant/plaintiff is that 12.5 per cent paid-up equity share of Rs. 10 each is to be allotted on the date of enhancement of authorised share capital of D2-SWL. In para (12) of the affidavit, calculating 12.5 per cent on Rs. 85,00,00,000 (said to be authorised share capital of the D2-SWL in December 2006), the applicant/plaintiff has alleged that though D2-SWL ought to have transferred Rs. 10,62,50,000 value of shares to the trust, it has allotted only 87,50,000 shares. As rightly submitted by the learned senior Counsel for D2-SWL, the value of allotment of 12.5 per cent equity share capital would be the subject-matter of dispute in arbitration proceedings. If the arbitrator is appointed, he would decide the question whether 12.5 per cent is to be paid on the date of slump sale agreement or on the date of enhanced share capital and it is not for the civil court to go into that aspect.
27. The applicant/plaintiff seeks for interim injunction restraining D2-SWL not to carry on business of Wind Energy Division in any other name. The relief sought for pertains to the dispute arising out of the terms of the slump sale agreement, which would again be the subject-matter of arbitration. It is well-settled that a shareholder acquires a right to participate in the profits of the company but the shareholder has no right in the property of the company in Bacha F. Guzdar v. CIT : [1955]27ITR1(SC) . Explaining the status of a shareholder with respect to the companies asset, the Supreme Court has held as follows:
That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. A shareholder has not got a right in the property of the company. There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders. The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the articles of association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole. (p. 74)
28. In considering the totality of the facts and circumstances of the case in the light of the law laid down the Apex Court in the decision cited supra, I am of the considered view that when pursuant to the slump sale agreement between D1-NEPC and D2-SWL, Wind Energy Division was sold to D2-SWL on certain conditions and consent was given by all the shareholders to that transaction by postal ballot, now the applicant/plaintiff cannot raise any objection and it cannot be considered as she has not made out any prima facie case as has been adumbrated above and has been held by the Supreme Court that a shareholder has a right to participate only in the profits of the company and has no right in the property of the company, the relief sought for in these applications are not related to the profits of the company but related to the property of the company, which cannot be entertained. Consequently, the applicant/plaintiff has no locus standi to raise objection pursuant to the terms of agreement between D1-NEPC and D2-SWL.
29. A word on balance of convenience. It is well-settled that interim injunction would be denied in a case where granting of it would cause greater hardship to the defendant. The balance of convenience lies only in favour of D2-SWL. The plaintiff has neither established prima facie case nor has shown that the balance of convenience lies in her favour. On the other hand, if the interim injunction is allowed to continue, D2-SWL having invested huge amount would be subjected to irreparable loss and hardship. Having regard to the facts and circumstances of the case, the interim injunction already granted is to be vacated.
30. For theioregoing reasons, the interim injunction already granted is vacated.
31. Both the applications stand dismissed.
32. It is made clear that the reasonings in this order may not be construed as an expression of opinion on the merits of the case.